Unregulated lenders in Mexico that specialize in loans to low-income people grew at a breakneck pace over the past decade, until accounting irregularities at three Deloitte-audited firms threw the sector’s credibility into question, the Wall Street Journal reported. The three lenders — Crédito Real SAB de CV, AlphaCredit Capital SA de CV and Grupo Finmart — have discredited some financial statements as unreliable. All retained the same auditor for years: Deloitte Mexico, the Mexico City-based unit of Deloitte Touche Tohmatsu Ltd. Investors and customers are looking for answers about exactly what exactly went wrong, and a lack of financial transparency from the lenders has cooled foreign investment into once burgeoning Latin American microfinance companies that depend on capital markets to fund their businesses. Crédito Real plans to file for insolvency in Mexico and may potentially liquidate, according to people familiar with the matter, after investors pulled the plug in the wake of its accounting irregularities. Roughly half of the value of its loan portfolio, or around $1.1 billion, turned out to be unpaid interest, a number the company didn’t break out for years until it was included in a footnote to its 2020 financial statements. The company’s board resigned en masse this spring, and current management is mediating between the company’s creditors and its largest shareholder, Angel Romanos Berrondo, who founded the company in the 1990s. AlphaCredit last year wrote down the value of certain assets by about $200 million, equivalent to about half of its total loan portfolio. The lender hired a new auditor, revoked its 2018-20 financial statements as unreliable and placed a U.S. subsidiary in bankruptcy. About two years after attracting SoftBank Group Corp. as an investor, AlphaCredit is now broken up and is no longer issuing new loans.
